3 This report has been peer reviewed by the Peer Review Panel using the Panel s terms of reference Submitted for review on 18 July 2014 Review completed on 9 September 2014 Reviewed by two reviewers Approved for Auckland Council publication by: Name: Regan Solomon Position: Manager, Research, Investigations and Monitoring Date: 9 September 2014 Recommended citation: Hitchins, H., Fairgray, S., Rohani, M and Wilson, R. A. (2014). Auckland s housing market: spatial trends in dwelling prices and affordability for first home buyers. Auckland Council technical report, TR2014/ Auckland Council This publication is provided strictly subject to Auckland Council s copyright and other intellectual property rights (if any) in the publication. Users of the publication may only access, reproduce and use the publication, in a secure digital medium or hard copy, for responsible genuine non-commercial purposes relating to personal, public service or educational purposes, provided that the publication is only ever accurately reproduced and proper attribution of its source, publication date and authorship is attached to any use or reproduction. This publication must not be used in any way for any commercial purpose without the prior written consent of Auckland Council. Auckland Council does not give any warranty whatsoever, including without limitation, as to the availability, accuracy, completeness, currency or reliability of the information or data (including third party data) made available via the publication and expressly disclaim (to the maximum extent permitted in law) all liability for any damage or loss resulting from your use of, or reliance on the publication or the information and data provided via the publication. The publication, information, and data contained within it are provided on an "as is" basis.

4 Auckland s housing market: Spatial trends in dwelling prices and affordability for first home buyers Hadyn Hitchins Susan Fairgray Mehrnaz Rohani Ross Wilson Social and Economic Research Research Investigations and Monitoring Unit Auckland Council

5 Executive Summary Housing affordability is an important issue for many urban economies, as it can affect the economic growth, individual and social well-being and ultimately the liveability of a city. This has been an issue in Auckland as a rapid increase in dwelling prices over the past decade (particularly between 2001 to 2007) has raised concerns about housing affordability, particularly for first home buyers. In response to this issue, Auckland Council has initiated a number of policies to moderate dwelling prices by increasing the supply of developable land and housing. The objective of this report is to develop an evidence base on trends in house prices and housing affordability at a detailed spatial level. This evidence can be used to inform future policy changes, decision-making and research. Although Auckland s housing market and housing affordability has been extensively researched in recent years, the majority of the analysis has been done at a national or regional level, rather than a sub-regional or local level. This report extends this research, by examining the trends of local house prices and housing affordability over time. This report is divided into two parts. The first part examines the trends in dwelling prices at a localised level across Auckland, while the second analyses the geographic patterns of affordability for first home buyers in Auckland and changes over time. The trends in dwelling prices were examined by comparing dwelling sales data from 1982 to 2012 at the Census Area Unit (CAU) level to the regional average. The analysis showed: Areas within the central city, such as Parnell, Herne Bay, Ponsonby, Devonport and Epsom have the highest dwelling prices relative to the Auckland average. In contrast, many of the areas within Western and Southern Auckland, such as Otara-Papatoetoe, New Lynn and Mangere have lower dwelling prices relative to the Auckland average. The city centre also has lower dwelling prices relative to the Auckland average. Between and , dwelling prices have increased most rapidly in areas around Hobsonville and Whenuapai, in central city areas close to the city centre such as Ponsonby and Grey Lynn, in Devonport, and on Waiheke Island. The areas with the lowest rate of change include areas of southern Auckland including Wiri, Bombay, Papatoetoe and Papakura. Housing affordability for first home buyers in this report was defined using the 30 per cent rule with a house deemed affordable if the housing costs were less than 30 per cent of a first home buyer s household income. First home buyers were defined as an employed couple aged This definition is broader than that used in other similar reports produced in New Zealand. The results showed: The share of sales categorised as affordable has fallen substantially during the study period, from 74 per cent in 1999 to 39 per cent in This trend has been relatively consistent throughout Auckland, for both larger dwellings and the total market. Overall, 95 per cent of CAUs measured in this analysis showed an absolute decrease in affordability between the and periods. However, lower interest rates and slower Auckland s housing market: Spatial trends of prices and affordability for first home buyers i

6 increases in dwelling prices following the Global Financial Crisis led to a temporary improvement in the share of affordable dwelling sales after 2008 at the regional level. Many areas around the urban periphery in northern and western Auckland have experienced relative decreases in affordability when compared to Auckland as a whole. Conversely, some areas such as the City Centre and fringe, Helensville/Parakai, Waiuku and Wellsford had an overall increase in relative affordability. These results suggest that the nature of housing affordability is complex and varies widely throughout Auckland and also over time. These findings have particularly important issues for the development and implementation of housing policy. In particular, the consistent variation in dwelling prices could affect the implementation of Special Housing Areas (SHAs) across Auckland. This is because the relative dwelling prices within a particular SHA could influence the timing and profitability of development. Therefore, it is important to recognise and take account of this variation during the implementation phase of the development. This study also shows that since 1999, affordability has decreased across most areas of Auckland, for both large dwellings and the total market. This means that although the housing affordability problems are more obvious in areas with higher prices, it does provide some evidence that housing affordability is an Auckland-wide issue. The study indicates that the ratio measure of affordability is heavily influenced by interest rates. This means when using the ratio measure for policy setting, such as establishing the price for retained affordable housing, it would be important to conduct sensitivity testing to determine how much the affordability level is affected by short-term changes in interest rates. This report provides an initial evidence base that can be used for policy development, decision making and research. However, while it describes spatial changes in Auckland s housing market, it does not investigate the causes of these changes. Consequently, an important area for future research is to study the determinants of house prices and housing affordability, including localised factors, such as proximity to employment, transport infrastructure and services, local amenity, and the size and quality of the housing stock. It could also be useful to extend this work to examine the issue of nominal vs real interest rates and incomes. Similarly, further research would be needed in order to understand the housing development process. This research could consider the interaction between land and capital value, construction costs, and land use regulations within Auckland s housing market. Auckland s housing market: Spatial trends of prices and affordability for first home buyers ii

7 Table of Contents 1.0 Introduction The housing market and Auckland s urban economy Housing affordability policy in Auckland Auckland Council Legislation: Developing an evidence base for policy implementation Report objectives Background Measuring housing affordability Housing affordability research in Auckland and New Zealand Methodology Data sources Part 1: Measuring trends the spatial structure of Auckland s housing market Part 2: Measuring geographic patterns of affordability for first home buyers in Auckland Part 1 Spatial trends in Auckland s housing market Analysing changes to the spatial structure of Auckland s housing market Part 2 - Geographic patterns of affordability for first home buyers in Auckland Regional level analysis of housing affordability Spatial analysis of dwelling affordability in Auckland Relative changes in housing affordability between Discussion Summary of key findings Limitations Potential implications for policy Areas for future research References Appendix A Areas described this in report... A-1 Auckland s housing market: Spatial trends of prices and affordability for first home buyers iii

8 List of Figures Figure 2-1: The multiple determinants of housing affordability... 7 Figure 3-1: Conceptual graphs show relationship between dwelling price and relative price quotient... 9 Figure 4-1: Dwelling prices relative to Auckland average, Figure 4-2: Change in dwelling prices relative to the Auckland average, compared to Figure 4-3: Dwelling prices relative to Auckland average, Figure 4-4: Change in dwelling prices relative to the Auckland average, compared to Figure 4-5: dwelling prices relative to Auckland average, Figure 4-6: Change in dwelling prices relative to the Auckland average, compared to Figure 4-7: House price relative to Auckland average, Figure 4-8: Change in dwelling prices relative to the Auckland average, compared to Figure 5-1: Auckland first home buyers estimated income and minimum mortgage lending interest rate, Figure 5-2: Affordable dwelling sale price for Auckland first home buyers and minimum mortgage lending interest rates, Figure 5-3: Average Auckland dwelling sales prices, Figure 5-4: Share of Auckland dwelling sales by affordability for first home buyers, Figure 5-5: Number of Auckland dwelling sales by affordability category for first home buyers, Figure 5-6: Share of Auckland dwelling sales by number of bedrooms, Figure 5-7: Number of Auckland dwelling sales by number of bedrooms, Figure 5-8: Share of total Auckland dwelling sales categorised as affordable for first home buyers, by number of bedrooms, Figure 5-9: Affordable dwelling sales (for first home buyers) in Auckland by number of bedrooms, Figure 5-10 Distribution of affordable dwelling sales, by CAU, Figure 5-11: Share of three or more bedroom dwellings that were affordable to first home buyers, by CAU, Figure 5-12: Share of dwelling sales classified as affordable for first home buyers, by CAU, Figure 5-13: Proportion of sales that were affordable by CAU, large dwellings (3+ bedrooms), 1999 compared to Auckland s housing market: Spatial trends of prices and affordability for first home buyers iv

9 Figure 5-14: Proportion of sales that were affordable by CAU all dwellings, compared to Figure 5-15: Change in affordability relative to the Auckland average for first home buyers in Auckland, Figure 5-16: Change in affordability relative to the Auckland average for first home buyers in Auckland, compared to Auckland s housing market: Spatial trends of prices and affordability for first home buyers v

10 1.0 Introduction 1.1 The housing market and Auckland s urban economy Housing affordability has become a major policy issue in Auckland. The prominence of this issue has in part been due to a rapid increase in median house prices, particularly between (Auckland Council, 2012). The price, geographical location and characteristics of housing are important determinants of the liveability of Auckland for households and communities. These factors determine the consumption of space by households along with their access to amenity, employment and other aspects of the region. Auckland is New Zealand s largest urban economy, acting as the country s major commercial hub and international gateway. Its industrial structure contains a high share of higher value (and higher wage) jobs, many of which are located within Auckland s main commercial centres and are strongly influenced by issues such as agglomeration (Maré and Graham, 2009; Maré, 2008). In this respect, Auckland is following global trends. Cities have assumed an increasingly important role in most developed economies, while cities economic bases have shifted from industry to tertiary sector activities. Coupled with this is the growing importance of major cities as core commercial nodes within global economic networks. In addition to growth in higher wage jobs, cities are also becoming places of advantage for access to education, healthcare and other household goods, services and urban amenity. These trends are evident in the direction and nature of growth within Auckland. Since the 1940s, Auckland has developed a dispersed urban form with a complex hierarchy of centres and other urban nodes. While employment and residential population in the City Centre has increased substantially over the last decade, major suburban nodes such as Albany and Manukau also act as key hubs of amenity for households and communities in Auckland s suburbs. Like many other major cities, Auckland faces strong demand for land from both households and businesses as they seek to realise the advantages offered by a large city. Coupled with Auckland s constrained geography, historic lower density development patterns and urban expansion, have resulted in scarcity of land for housing and business development (New Zealand Productivity Commission [NZPC], 2012). A lack of land supply and relatively low levels of intensification in areas of high amenity has also contributed to a shortfall of dwellings in desirable areas (Auckland Council, 2012). 1.2 Housing affordability policy in Auckland Housing affordability is an important issue for many urban economies, as it can affect the economic growth, individual and social well-being and ultimately the liveability of a city. Housing affordability is a multi-dimensional issue, and there are many different methods to define and conceptualise housing affordability. The most visible factor in Auckland in recent years has been 1 Other issues consist, under supply housing, lack of housing choice, poor quality housing and unhealthy and overcrowded housing. Auckland s housing market: Spatial trends in dwelling prices and affordability for first home buyers 1

11 the relatively large increases in nominal median house prices, which have increased from $262,000 in June 2002 to $600,000 in June 2014 (REINZ, 2014). Due to this, understanding and addressing the factors underpinning housing affordability is a significant policy issue for Auckland Council and is specifically addressed within chapter 11 of the Auckland Plan (Auckland Council, 2012). The Auckland Plan recognised that there is no internationally agreed and defined measure of housing affordability, but utilised the common median multiple of income (MMI) as a working definition. Using this measure, it demonstrated that housing affordability for owner-occupiers was a significant issue, particularly for those on low-middle income. To address this issue, the plan suggested a number of policy directives outlined in the Auckland Plan to increase the quantity and quality of Auckland s housing stock to alleviate long-term housing affordability (Auckland Council, 2012). Some of these policy directives are now in the process of being operationalised through the establishment of the Housing Project Office (HPO) within Auckland Council to assist with the delivery of fast-tracked special housing areas in association with central government. The Proposed Auckland Unitary Plan (PAUP) also has provisions to support the development of affordable housing. These provisions include supporting more compact development by reducing barriers to infill development and medium density housing, as well as implementing a flexible ruralurban boundary (RUB) that will facilitate new land supply on greenfield sites (Auckland Council, 2013). The other major provision is the objective to increase the level of affordable housing in an area by retaining a percentage of some consented developments for affordable housing through inclusive zoning. These policies are aimed at increasing both the stock of housing, but also the number of choices (in terms of size and type of dwelling) available to different groups of homebuyers (Auckland Council, 2013). In order to effectively implement these policies it is important to understand how affordability in Auckland has changed spatially over time. It is also a requirement of Auckland Council s governance legislation, which is described in more detail in the following section. 1.3 Auckland Council Legislation: Developing an evidence base for policy implementation. The Local Government (Auckland Council) Amendment Act 2010 states that Auckland Council must produce a spatial plan for Auckland (79) and that this must provide an evidential base to support decision making for Auckland, including evidence of trends, opportunities, and constraints within Auckland (79)(4)(c). The plan must also understand how growth is likely to occur (including for individual geographic areas (79)(4)(d)) and the supply of infrastructure, land and other investment to cater for this growth (79)(4)(b), (d) and (f). A central government position paper Developing an Evidence Base for the First Auckland Spatial Plan states that (t)he government considers it very important that the Auckland spatial plan is underpinned by a strong evidence base (p2) and that (t)his means appropriate data, accurate interpretation of this data, and rigorous analysis techniques, contributed to by Government agencies as well as the Auckland Council (p2) (Department of Internal Affairs, 2011). Moreover, it Auckland s housing market: Spatial trends in dwelling prices and affordability for first home buyers 2

12 states that successful spatial planning is underpinned by a credible evidence base, which includes social, economic and environmental information from a range of sources, and integrates this on a spatial basis [emphasis added] (p5) (Department of Internal Affairs, 2011). This evidence is also to be expanded on an ongoing basis. 1.4 Report objectives It is important to understand how the spatial structure of Auckland s housing market has changed through time. The location of residents has important implications for urban planning and transport planning as it influences peoples access to employment and services, demand for travel, and other urban amenities. Changes in the spatial structure of the market also have significant implications for the location and type of housing available to first home buyers in Auckland. Together, these factors influence the liveability of Auckland. The objective of this report is to demonstrate how housing affordability has changed over time using the ratio method described in the PAUP, as this provides an initial evidence base that can be used to inform future policy changes, decision making and research. This report builds upon previous research which has generally explored housing affordability at a regional or more aggregated sub-regional level. It examines housing affordability at a detailed spatial level. The subject area of housing and housing affordability draws together social and economic evidence, which are typically inseparable when considering effects and processes within an urban economy. All of these processes contribute to the spatial structure of Auckland s housing market. In this context, the spatial structure refers to where housing is located across Auckland, as a response to the level of economic activity, infrastructure and amenity. Part 1 of this report aims to demonstrate how the spatial structure of Auckland s housing market has changed over time by measuring changes in sales prices of dwellings at a local level, relative to the Auckland average, over the past two decades. Highlighting these local level changes is important as it provides greater context around the general trends within Auckland s housing market. Part 2 of this report aims to investigate how affordability has changed spatially for first-home buyers between 1999 and 2013 at a localised level. This is achieved by incorporating the methods for measuring affordability included within Auckland s proposed unitary plan. Auckland s housing market: Spatial trends in dwelling prices and affordability for first home buyers 3

13 2.0 Background 2.1 Measuring housing affordability Housing affordability is a complex issue, as there are many different ways to define and measure affordability. The issues around housing affordability have been extensively explored by The Australian Housing and Urban Research Institute (AHURI), which produced a detailed report investigating the different approaches that have been used to measure housing affordability in recent decades (Stone, et al., 2011). The three most common methods include a multiple measure of income; the ratio method; and the residual method. Stone et al, (2011) particularly note that the recent academic literature on housing affordability has tended to focus on using methods that are more reflective of the lived experience of homeowners, rather than a more abstract average household. This issue is particularly important when comparing housing affordability for different home-purchasing groups Median Multiple of Income The Median Multiple of Income (MMI) is a common approach, used widely by many groups, particularly by the banking and real estate industry (Stone, et al., 2011). It was also used in the Auckland Plan (Auckland Council, 2012). The indicator computes that ratio of the median sale prices of houses in a given area to the annual median income of people living in that area. This ratio can then be used to examine temporal or geographic variances in house prices. Demographia produces an annual report comparing this ratio across different cities. This report classifies a ratio of 3.0 or less as affordable, with higher thresholds defined as moderately, seriously and severely unaffordable (Demographia, 2014) The major advantage of the MMI is that it gives a consistent and understandable ratio to compare different areas, however its major limitation is that it cannot assess how many and which kinds of households can and cannot afford which properties that are for sale (Stone, et al., 2011). It also is not able to assess the impact of mortgage and lending rates, which vary between countries and over time, and which can have a major impact on households ability to purchase a home Ratio Measure The ratio method takes the approach that if households need to spend more than a certain proportion of their income on housing, then they may not be able to cover all other household expenses and have the potential to experience housing stress. A common acceptable level is 30 per cent (also known as the 30 per cent rule ), which has been used in numerous estimates of housing affordability (Stone, et al., 2011). The ratio method is particularly useful, as it is relatively straightforward to estimate given the sometimes limited data available. However, the literature describes some limitations with this approach. In particular, like the MMI, it isn t able to accurately compare different household sizes or groups a potential issue given the fact that higher-income households may be able to spend a greater share of their incomes on housing while still paying for Auckland s housing market: Spatial trends in dwelling prices and affordability for first home buyers 4

14 other necessities (Wight, et al., 2011). This issue is common to all affordability measures (see section 2.1.3). The ratio method is particularly useful as a basis for exploring changes in housing affordability in a particular group, and is more accurate than the MMI method (Wight, et al., 2011). The ratio method has been incorporated into the PAUP, as a measure of affordability and follows the 30 per cent rule described above. The specific rule is described below: Price in the case of retained affordable housing means: 1. Dwellings must be sold or rented at a rate that means households on 80 to 120 per cent of the median household income for Auckland spend no more than 30 per cent of their gross income on rent or mortgage repayments, where: a. median household income shall be determined by reference to Statistics New Zealand b. in the case of purchase, normal bank lending criteria shall apply, and shall at a minimum be based on a 10 per cent deposit, a 30 year loan term and the average published interest rate of the 4 main trading banks. (Auckland Council, 2013) Residual measure The residual measure uses a budget approach to measuring housing affordability. Its premise is that the amount that can be spent on housing by a household is the residual amount left over after all other house expenses have been met. Different budget profiles can then be estimated for different types of households to show how they vary in terms of housing affordability. A key limitation with this approach is that budget profiles are highly subjective, and are reliant on assumptions about how an average household spends its income. AHURI has applied this measure to Melbourne by incorporating specialised budget profiles produced in conjunction with the Australian Bureau of Statistics (Wight, et al., 2011). Some of the affordability measurements and GIS techniques developed in Wight et al (2011) have been used as a framework in this report (see section 3.0 for more information). This section shows that there are different methods to conceptualise and define housing affordability, however, each method has distinct advantages and disadvantages. The next section will describe some methods that have been utilised to estimate and measure housing affordability within Auckland and New Zealand. 2.2 Housing affordability research in Auckland and New Zealand Housing affordability has generated a high level of interest in recent years, with in-depth investigations of the drivers of housing costs from both demand and supply-side perspectives. The literature is wide ranging and includes analysis of the implications of planning for different types of outcomes, including density (Beattie, et al., 2012), gentrification, new urbanism (Austin Auckland s housing market: Spatial trends in dwelling prices and affordability for first home buyers 5

15 and Whitehead, 1998; Dixon and Dupris, 2003) and urban boundary and metropolitan urban limit issues (DTZ, 2004; Leggatt-Cooke, 2007; Maclennan, 2009; Zheng, 2013). Previous research has also examined the drivers of housing prices from a perspective of population growth and migration (DTZ, 2004; Department of Building and Housing, 2010; Mare and Coleman, 2011, Jackson, 2012;), infrastructure development (Grimes, 2007; Grimes and Young, 2010) and construction costs (Department of Building and Housing, 2010). More recent studies have incorporated many of these drivers, to measure their impacts simultaneously (Grimes, et al., 2013), and measure the impact of credit shocks relating to the Global Financial Crisis (Grimes and Hyland, 2013). In 2012, the New Zealand Productivity Commission (NZPC) released its findings of the housing affordability inquiry, which summarised and discussed many of the drivers and determinants of housing affordability and are outlined in Figure 2-1. The NZPC report in particular argued that the supply-side drivers of construction costs and land prices were important factors in the recent increase in house prices, particularly in Auckland. The Commission found that overall the average house prices were approximately five times the national average annual disposable income, and have increased from twice the national income in The NZPC also noted that affordability issues in Auckland were far more acute, with Auckland among the most unaffordable regions in New Zealand and was classed as severely unaffordable (Demographia, 2011 cited by NZPC, 2012). The subsequent releases of the Demographia report between , continued to use the MMI methodology to show that Auckland has remained severely unaffordable (Demographia, 2014). Another study which has specifically examined housing affordability is the Massey University Home Affordability Report. It compares regional house affordability across New Zealand. In June 2014, it found that Auckland house prices were 38 per cent higher than the national average, and that housing affordability had declined by 9.1 per cent since June 2013 (Massey University, 2014). The Treasury has also examined housing affordability by analysing results from national household surveys, including the Household Economic Survey (HES) and the Survey of Family, Income and Employment (SOFIE) between 2004 and 2008 (Law and Meehan, 2013). Overall, it found that although house prices rose rapidly between 2004 and 2008, there was only a slight decline in home ownership rates. It also noted that factors associated with higher ownership rates included being partnered, female and older. Housing affordability and home ownership was shown to be lower within Auckland compared to other regions of New Zealand, due to a complex range of demographic and economic factors (Law and Meehan, 2013). At a sub-regional level, Roost Mortgage Brokers publish indicators based on a variant of the ratio method. Specifically the indicators measure the proportion of the average take home pay in a given area, which is required to service a mortgage for typical homebuyers. It found that the ratio was 71 per cent for the North Shore, 67 per cent for Central Auckland, 65 per cent for South Auckland and 58 per cent for West Auckland (NZPC, 2012). These results were similar to those discussed in the comprehensive Auckland Housing Market Assessment prepared by Darroch (2010) for the Centre for Housing Research, Aotearoa New Zealand (CHRANZ) in 2010, which incorporated a wide variety of measures of housing affordability. It showed that in general, housing affordability Auckland s housing market: Spatial trends in dwelling prices and affordability for first home buyers 6

16 had decreased across Auckland between , and that one person and single parent households and retired people who rent experienced the highest levels of financial housing stress in the region (paying more than 30 per cent of gross household income). It also showed that the areas North and Central Auckland had the lowest levels of affordability in Auckland (Darroch, 2010). Figure 2-1: The multiple determinants of housing affordability Supply factors Instituitions and government policies Demand Factors House Prices Household Income Finance Costs Housing Affordability Source: New Zealand Productivity Commission, 2012 These findings are also consistent with survey research undertaken by Beacon Pathway Ltd in 2010, around the determinants and location choices of year-olds in Auckland, on behalf of CHRANZ. The research noted that housing demand among year olds was most likely to be situated around areas in central and northern Auckland. This research also emphasised the relationship between housing choice and locational amenity, and the effect that rising house prices can have in terms of limiting future choices (Beacon Pathway, 2010). Overall, this report aims to add depth to this analysis, by examining the trends of local house prices and housing affordability over time. Auckland s housing market: Spatial trends in dwelling prices and affordability for first home buyers 7

17 3.0 Methodology The spatial analysis of Auckland s housing market has been undertaken in two parts. The first identifies trends in changes to the spatial structure of the market overall; the second investigates geographic changes to housing affordability for first home buyers across Auckland. 3.1 Data sources The house sales data in this report was obtained from Property IQ Ltd. This dataset covered the average dwelling 2 sales price for each Census Area Unit (CAU) 3 for each calendar year from 1982 to (Property IQ, 2012). This is the main data source used in Part 1. The dataset used in Part 2 is also sourced from Property IQ, and provides the number of dwelling sales (by dwelling size) above and below the threshold of affordability (identified in section 3.3.4) for each Auckland CAU between 1999 and 2013 (Property IQ, 2013). Supplementary data used to identify affordability thresholds such as incomes and interest rates, was drawn from Statistics New Zealand and the Reserve Bank of New Zealand. Sections 3.2 and 3.3 provide more specific detail about how this data was used. The rationale for using CAU level data is that it provides a greater opportunity to understand the localised effects of house price and affordability trends. It better reflects the geography at which the real estate market operates and at which Auckland Council plans, manages, and delivers city services and key infrastructure. 3.2 Part 1: Measuring trends the spatial structure of Auckland s housing market To effectively measure the spatial changes in the housing market, it is important to compare changes relative to the Auckland average, as this allows changes to be put into a regional context. To achieve this, part 1 of the analysis implements two related measures: 1. Relative sale price 2. Change in relative sales price over time 2 Dwellings include all residential dwellings that would ordinarily house a private household(s). 3 CAUs are an official statistical geographic division and are approximately the size of a neighbourhood/suburb within an urban area. They are geographically larger in rural areas due to lower population densities. The 2006 census CAU geography has been used given the historic data coding. 4 In the first stage of analysis, data was only available to the end of the first quarter of Auckland s housing market: Spatial trends in dwelling prices and affordability for first home buyers 8

18 3.2.1 Relative sales price Relative sales price provides a quotient of sales price relative to the Auckland average. The top graph in Figure 3-1 shows trends in dwelling prices in CAUs A, B, and C and compares them with the Auckland average. The bottom graph shows prices in CAUs A, B, and C indexed to the Auckland average. At any given time, a CAU with an average dwelling price equal to the Auckland average would have a relative price quotient of 1. In this example, at Time 1, CAUs A and C have a relative price quotient below 1, indicating that area is below the Auckland average. CAU B is above the Auckland average, so its quotient is above 1. This paper uses the relative price measure to examine the structural shifts and changes in dwelling prices, as it can show variations in dwelling prices in a point in time and identify spatial shifts in the market over time. Figure 3-1: Conceptual graphs show relationship between dwelling price and relative price quotient Y X Auckland s housing market: Spatial trends in dwelling prices and affordability for first home buyers 9

19 3.2.2 Change in relative dwelling sales price over time The second measure is the change in these relative dwelling prices sales price over time, which highlights the areas that have changed their position relative to the Auckland average through time. For example, Figure 3-1: shows that CAU A has moved from below the Auckland average in Time 1 to above the Auckland average in Time 2. The change in the relative dwelling sales price is therefore the difference between point Y and point X in the lower graph. Figure 3-1: also shows that between Time 1 and Time 2, the relative dwelling sales price fell for CAU B, while CAU C showed no change relative to the Auckland average Mapping trends and spatial structure The results of the housing market measurements are displayed using a GIS system in order to identify and analyse the spatial patterns of these changes across Auckland. In order to highlight the changes over time, the data between will be analysed across four time periods: compared to compared to compared to compared to These time periods are not uniform and have been aggregated together to effectively capture the cycle of housing trends, as house prices rose faster between Previous research (NZPC, 2012) has noted that house price growth remained relatively steady until the early 2000s, when there was a significant general increase in dwelling prices between 2000 and Dwelling and house price growth stagnated following the GFC, but began to increase again after 2010 (Property IQ, 2012). To capture these effects, the time periods between 1982 and 1999, are in 8 year increments, while after 2000 the reference periods are in 4 to 5 year increments. 3.3 Part 2: Measuring geographic patterns of affordability for first home buyers in Auckland Part 2 of this report analyses the regional and sub-regional, spatial patterns of housing affordability for first home buyers in Auckland, and how these have changed across the medium term. It uses GIS mapping to display spatial patterns in the Auckland s housing market. In doing so, it defines affordability as specified in the Auckland Unitary Plan. Auckland s housing market: Spatial trends in dwelling prices and affordability for first home buyers 10

20 3.3.1 Defining affordability This report uses the ratio method to define affordability and incorporates the 30 per cent rule, which considers a house being as affordable if the total amount spent on mortgage repayments (housing costs) accounts for 30 per cent or less of household income. As discussed in Section 2.1, this measure incorporates financing costs (i.e. interest rates on mortgages). As the ratio method has been incorporated into the PAUP, it is relevant in an Auckland policy context Defining first home buyers First home buyers have been defined in this report as households composed of two people aged between 25 and 34 years, with both people employed (full time). Very few statistics are available on the characteristics and number of first home-buyers of New Zealand. Therefore, this definition is drawn from the findings of recent housing literature in Australia. In particular, a study incorporating many surveys of housing demographics found that more than 50 per cent of first home buyers were aged between years old (Kupke, 2008). This definition does not represent the full spectrum of people who may desire to buy their own home, particularly within Auckland. However, it is generally characteristic of the household composition and life stage (more secure employment) of when people first begin considering the purchase of a home. Other measures of affordability for first home buyers in New Zealand, such as the Roost Home Loan Affordability Report tends to have a narrower definition of people aged between 25 to 29 (Roost Mortgage Brokers, 2014) Calculating first home buyer average household incomes Average income 5 for representative first home buyers in Auckland was calculated from a customised order of the Linked Employer Employee Database (LEED) for year olds (Statistics New Zealand, 2013), and was estimated from people employed in continuing jobs (from the previous quarter) in Auckland 6. This was multiplied by two to align it with the affordability definition of a two-person household. This definition is for a theoretical average of household income, as it does not take into account gender-wage gaps, sole-employee households, or parttime work. Therefore it is possible that this definition may overstate the incomes of some potential 5 It is acknowledged that an average differs to the median as specified in the Auckland Unitary Plan. However, median values were not available for specific age and employment status groups required to reflect this report s definition of first home buyers. Furthermore, the Auckland Unitary Plan does not provide clear guidance on exact Statistics New Zealand income data sources to use. The difficulty in navigating a range of income data sources available was also identified by Wight, et al (2011) when measuring affordability in Melbourne. 6 The LEED data on income was decided to be best suited for this study as it was available for the correct time period, disaggregated by age, was reported by businesses based on tax records, and continuing employment was likely to give a better indication of first home buyers eligible for mortgages given their stable employment situation. Other potential household income data sources included self-reporting of income, people not in paid employment (including those receiving benefits) and other non-employment sources of income, which are less likely to be considered when applying for a mortgage. Auckland s housing market: Spatial trends in dwelling prices and affordability for first home buyers 11

Housing Reserve Equity Bank of Australia Bulletin February 23 Housing Equity The increase in housing prices in recent years has contributed to rising household wealth and has helped to underpin continued

Housing Turnover and First-home Buyers Paul Bloxham, Daisy McGregor and Ewan Rankin* While housing turnover varies over time, on average, around 6 per cent of the housing stock, or around dwellings, change

Housing Affordability Report MARCH QUARTER Housing affordability improves on the back of falling interest rates as loan sizes rise and incomes stall The first quarter of showed an improvement in housing

House Price to Income Ratios in Australia December 2010 House price to income ratio... 2 Recent commentary on Australia s ratio and market... 2 Data inputs and analysis... 3 Results... 4 House price to

Land Use Regulation: Comparing Housing Affordability in Sydney, Melbourne, Dallas-Fort Worth and Atlanta T he devastating impact of more prescriptive land use regulation (urban consolidation or compact

Household Borrowing Behaviour: Evidence from HILDA Ellis Connolly and Daisy McGregor* Over the 199s and the first half of the s, household debt grew strongly in response to lower nominal interest rates

The underlying fundamentals of housing affordability: the Sydney dynamics. Associate Professor Angelo Karantonis Head of School School of the Built Environment University of Technology, Sydney Keywords:

Home loan affordability report Joint Quarterly Survey No. 89. ember Quarter Low affordability challenges Gen X, Y Home loan affordability has taken another beating as the proportion of family income required

NAPIER MAY 2016 HOME LOAN AFFORDABILITY REPORT Home loan affordability is a measure of the proportion of take-home pay that is needed to make the mortgage payments for a typical household. If that is no

Project LINK Meeting New York, - October 1 Country Report: Australia Prepared by Peter Brain: National Institute of Economic and Industry Research, and Duncan Ironmonger: Department of Economics, University

19 May 2016 First home buyer affordability in Tauranga The interest.co.nz first home buyer index for April 2016: Household income is a key criteria for lending institutions. We have established a set of

Who Could Afford to Buy a Home in 200? Affordability of Buying a Home in the United States Current Housing Reports Ellen Wilson and Robert R. Callis Issued May 203 H2/3-02 IntroductIon This is the seventh

Reproduction of material Material in this report may be reproduced and published, provided that it does not purport to be published under government authority and that acknowledgement is made of this source.

21 August 2015 Interest.co.nz Home loan affordability in The interest.co.nz home loan affordability index for July 2015: Based on our standard household profile, it now takes 40.3% of the median take home

Vulnerability of new mortgage borrowers prior to the introduction of the LVR speed limit: Insights from the Household Economic Survey AN215/2 Ashley Dunstan and Hayden Skilling March 215 Reserve Bank of

NOTES ON BANK FEES ON SMALL BUSINESSES 1 At the previous meeting of this Committee, the Bank presented a preliminary analysis it had conducted into bank fees in Australia. 2 That analysis provided an overall

How do we get more first home buyers into the market? It s a question that has stumped successive governments and brought out many opinions, theories and remedies by commentators. But while policy makers

Prepared for CitiBank January 214 Combined capital cities Combined capital city home values increased by 2.8% over the final quarter of 213 according to the RP Data-Rismark Home Value Index. Home values

Cost of living The cost of housing is the single biggest cost of living issue in Australia today. Compared to other expenditure items, housing costs comprise the biggest share of household budgets accounting

Factsheet: LVR restrictions A guide for borrowers 1. What are LVRs? A loan-to-value ratio (LVR) is a measure of how much a bank lends against residential property, compared to the value of that property.

Introducing expanded external lending and debt statistics Crown copyright This work is licensed under the Creative Commons Attribution 3.0 New Zealand licence. You are free to copy, distribute, and adapt

20 TH ANNUAL PACIFIC-RIM REAL ESTATE SOCIETY CONFERENCE CHRISTCHURCH, NEW ZEALAND, 19-22 JANUARY 2014 BARRIERS TO ENTERING AFFORDABLE HOME OWNERSHIP FOR YOUNG PEOPLE: A PRELIMINARY STUDY FROM UNIVERSITY

Global Cities and Housing The Sydney Case in its Australian and International Context Vivienne Milligan Context Demography and urban settlement patterns Economic conditions Governance, policy and institutions

New South Wales State and Regional Population Projections 21-251 251 24 Release TRANSPORT AND POPULATION DATA CENTRE THE TRANSPORT AND POPULATION DATA CENTRE (TPDC) The TPDC is located in the NSW Department

Appendix 11: AFFORDABLE HOUSING TERMS & CRITERIA (Provided by the Southampton Housing Authority March 18, 2013) What is Affordable Housing? There are a number of definitions of affordable housing as federal

Federal Reserve Bank of Dallas A Banker s Quick Reference Guide to CRA As amended effective September 1, 2005 This publication is a guide to the CRA regulation and examination procedures. It is intended

The Effects of Funding Costs and Risk on Banks Lending Rates Daniel Fabbro and Mark Hack* After falling for over a decade, the major banks net interest margins appear to have stabilised in a relatively

Section 6: Existing Households in Housing Need Introduction 6.1 Understanding the term housing need is key to assessing the requirement for affordable housing. It is important that the difference between

Glenorchy City Council Asset Strategy for Infrastructure Assets 2014/15 to 2017/18 Version 1.3 June 2014 Glenorchy City Council Asset Strategy for Infrastructure Assets Document Control Document Control

LOAN APPROVALS, REPAYMENTS AND HOUSING CREDIT GROWTH Introduction The majority of household borrowing is for the purchase of existing or new housing. Developments in borrowing for housing are important

6 SETTLEMENT HIERARCHY The previous comparison of projected dwelling demand and Category A land supply (see Section 5) demonstrates that the LGA generally has sufficient zoned land, in overall terms, to

Savills World Research Policy Response Buy to Let Tax Relief Autumn 215 savills.co.uk/research In his May budget the Chancellor announced a limit on mortgage interest relief for buy to let investors in

April 1 Recent Developments in Small Business Finance Introduction In 1, a Small Business Panel was formed by the Reserve Bank to advise it on the availability of finance to small business. At about the

JOINT QUARTERLY SURVEY NO.1 JUNE QUARTER Home Owners Confidence Boosted as Affordability Improves e quarter recorded an improvement in housing affordability with the proportion of income required to meet

Recent Developments in Low-deposit Loans 1 The stock of mortgage debt outstanding has risen at an average annual rate of 16 per cent over the past decade. As has been well documented, the main reason for

Introducing the award-winning Equity Finance Mortgage (EFM) Best New Product of the Year 2007 Best New Product of the Year 2008 What is an EFM? An Equity Finance Mortgage (EFM) is an award-winning home

Banking Fees in Australia The Reserve Bank has conducted a survey on bank fees each year since 1997. The results of the latest survey show that banks aggregate fee income was unchanged in 2. Fee income

BANKWEST CURTIN ECONOMICS CENTRE Housing Affordability The real costs of housing in WA Focus on Western Australia Report Series, No.2 April 2014 About the Centre The Bankwest Curtin Economics Centre is

Broadhectare study 2013 profile Brisbane City Introduction The preliminary estimated resident population of Brisbane City (hereafter referred to as Brisbane) ) at 30 June 2012 was 1,110,500 persons (Source:

State of Child Care in Australia This publication provides information on the state of child care in Australia. The report sources information from administrative data and survey data from the Department

The Financial Position of Australian Unlisted Businesses Tom Bilston and Melissa Watson* Using a variety of information sources, the financial position of unlisted firms in recent years is examined and

Key themes from Treasury s Business Liaison Program 73 Introduction As part of Treasury s Business Liaison Program, staff met with around 25 businesses and a number of industry and government organisations

SMALL BANK Comptroller of the Currency Administrator of National Banks Washington, DC 20219 PUBLIC DISCLOSURE May 29, 2012 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION Midland FS&LA Charter Number

Composition of Farm Household Income and Wealth Today it is rare for any household to receive all of its from a single source. Even when only one household member is employed, it is possible to earn from

Rent or buy report for March 2016 New Plymouth 27 April 2016 A monthly assessment of renting a property versus taking out a mortgage To buy or to rent The purpose of this Report is to help you decide when

HOW TO BUY PROPERTY WITHIN YOUR SELF-MANAGED SUPERANNUATION FUND COPYRIGHT All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or

The changing finances of students studying in London: Evidence from the 2002/03 Student Income and Expenditure Survey By Prof Claire Callender London South Bank University for the Mayor of London March

The Business Credit Index April 8 Published by the Credit Management Research Centre, Leeds University Business School April 8 1 April 8 THE BUSINESS CREDIT INDEX During the last ten years the Credit Management

The Credit Card Report May 4 The Credit Card Report May 4 Contents Visa makes no representations or warranties about the accuracy or suitability of the information or advice provided. You use the information

7.5 The Housing Sector 7.5.1 Introduction The Housing Authority is tasked with increasing the range of affordable housing options available in Western Australia guided by the Affordable Housing Strategy

1. Executive Summary For many Australians, their main form of savings over their lifetime is their home. Directing savings towards a home provides two benefits:- Ø A place to live, with security of tenure.

Federal Reserve Bank of Dallas A Banker s Quick Reference Guide to CRA This publication is a guide to the CRA regulation and examination procedures. It is intended for bank CEOs, presidents, and CRA and

Long Term Financial Planning Framework and Guidelines Long Term Financial Planning Framework and Guidelines for Western Australian Local Governments p1. Contents Foreword 4 1. Introduction 7 2. Purpose

CONGRESS OF THE UNITED STATES CONGRESSIONAL BUDGET OFFICE Percent 70 The Distribution of Household Income and Federal Taxes, 2008 and 2009 60 50 Before-Tax Income Federal Taxes Top 1 Percent 40 30 20 81st